Who Benefits From Social Health Insurance in Developing Countries?

A major policy issue in developing countries is the lack of formal insurance markets. A popular approach to this problem is compulsory social health insurance (SI). The movement towards SI has been motivated not only by the desire to expand insurance coverage, but also by fiscal pressure to shift the burden of delivering and financing health care from the public sector to the private. In this paper we show that SI fails to expand insurance coverage or shift the burden to the private sector because providers capture SI benefits as rent by raising price-cost margins to insured patients. As a result the out-of-pocket costs to the insured patient are the same as to the uninsured. Our empirical results from the Philippines indicate that hospitals extract 86 percent of SI benefits through price discrimination. We also show that expanding SI actually increased the burden on the public sector rather than relieving it.